Recently I was asked to write a full-length article for the Forbes website by one of their regular columnists.

The columnist, who I’ll call “Pat” to protect the guilty, had taken my Financial IQ Quiz and found it very insightful. So Pat asked me to answer ten questions in writing for publication in Pat’s column.

The questions indicated Pat knew full well that I have a contrarian take on Wall Street and that I’m an advocate for consumers and investors.

They included questions like…

“What are some of the scams in the mutual fund industry?”

“What’s the shocking truth about 401(k)s and IRAs?”

“How can investors protect themselves?”

So I painstakingly answered Pat’s questions, supporting each statement with highly credible, unimpeachable sources including Morningstar, the Securities and Exchange Commission, Government Accounting Office and the Department of Labor.

As requested, I made no mention of Bank On Yourself or the asset it is based on (super-charged dividend-paying whole life insurance).

About two days later, Pat thanked me for sending the Q&A, but declined to run it “because there’s just too much controversy” surrounding my work.

Pat even suggested I repurpose the content for my blog (a good case for “being careful what you wish for”…).

So below are my answers in full, which I think you’ll find very interesting. Some of these questions I’ve never addressed publicly before. (Check out question #5 about “what mutual funds do you recommend?”)

You Could Receive an Apple Watch or an Autographed Copy of My Latest Best-Selling Book – Just for Telling Us What You Think!

Yup! I really want to hear from you… AND I want you to read the answers I wrote, because it’s critical information you need to know to protect yourself and your hard-earned savings.

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So just tell us in the “Speak Your Mind” box at the bottom of this post your thoughts on any or all of the following:

Which answer or fact is the most surprising to you and why?

Which answer or fact is the least surprising to you and why?

What do you think is the real reason Pat got too scared to publish this article on Forbes? (Pat is a staunch Wall Streeter who typically interviews portfolio and fund managers)

We’ll pick the most interesting, insightful or funny comments made on this blog by midnight, Sunday, August 2… and give seven posters their choice of a $25 dining gift certificate for a restaurant in your area, or a personally autographed copy of my latest best-selling book, The Bank On Yourself Revolution (a $25.95 value).

However, we’ll send the person who posts the most interesting comment their choice of an Apple Watch Sport (a $399.00 value) OR a Fitbit Charge HR activity and fitness wrist monitor (a $149.95 value).

NOTE: Comments are moderated and may take a few hours to up to two days to appear on the blog.

Here are the simple rules to participate:

You must be a US resident over the age of 21.

Your post must be made on this blog in the “Speak Your Mind” comments at the bottom of this blog no later than midnight on Sunday, August 2nd. You must include a valid email address to qualify.

The top poster will be notified by Wednesday, August 5th and given a choice of an Apple Watch or a Fitbit Charge HR. We must hear back within two weeks about which you prefer along with a valid street address to send it to.

The other 7 winners will be notified no later than Wednesday, August 5th and must respond within 14 days whether you wish to receive a dining gift certificate or an autographed copy of the book. A valid street address is required to receive a book.

You may post more than one entry if you wish and there will be only one winner per household.

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The list of winners will be posted on this blog. All entries become the property of Bank On Yourself and by submitting an entry you give permission to Bank On Yourself to quote from or publish your comments.

Now Here’s the Q&A I Wrote for Forbes That They Got Too Scared to Publish…

1. What are some of the scams in the mutual fund industry?

For starters, mutual fund companies and the financial media love to tout and compare the results of funds over the past year, or past three or five years. And people make decisions about what funds to buy based on those performance records.

But the fact of the matter is that the only way to reduce or eliminate luck as a factor in performance results is by looking at track records of at least 15 years. Even a ten-year track record isn’t long enough, according to the well-respected Hulbert Financial Digest.

The second thing to be wary of is putting much faith into the performance reported in a mutual fund prospectus.

Case in point:

The top-performing mutual fund for the decade ending December 31, 2009, enjoyed an 18% annual return. However, the typical investor in that fund didn’t come anywhere close to getting an 18% annual return. In fact, they actually lost an average of 11% per year – every year – for ten years, according to Morningstar, Inc.

Wondering how that’s possible? It’s because mutual funds are legally required to advertise only the results of “buy-and-hold” investors. So when a fund advertises returns for any given period – in this case, a decade – it assumes investors bought the fund on the first day of that period and held it until the last day of the period – no matter how wild the ride got. But that rarely happens in real life. In fact, on average, investors hold mutual funds for less than five years.

The fees in far too many mutual funds are horrific wealth-killers. The fund industry hopes we all continue to believe that a fee of .5% or 1% a year is pretty insignificant.

The problem is that, in the case of mutual funds and retirement accounts like 401(k)s and IRAs, the fees are tacked on, and fees that compound against you can be devastating.

An annual fee of just 1% per year – and many people pay at least that inside their retirement accounts – will devour 28% of your savings over the next 35 years, assuming your returns average 7% per year, according to the Department of Labor.

People also assume that if you buy an Index Fund, the fees are going to be quite low, because it’s simply tracking an index and not being actively managed.

But I did an exposé in which I found that a very popular, widely held S&P 500 Index Fund will consume almost 23% of your money in fees over 30 years. And another S&P 500 Index Fund will siphon off more than 37% of your money over 30 years! If you had $1 million invested in this fund, that’s over $370,000 lost to fees!Someone’s getting wealthy, but it’s not the poor investor in those funds!

3. What percentage of mutual funds underperform their benchmarks?

Fully 80% of all mutual funds, portfolio managers and investment advisory services underperform their respective benchmarks, according to The Hulbert Financial Digest. And that’s not only because of the fees they charge. The experts are humans, too, and they’re predictably irrational like the rest of us, buying and selling at the wrong times.

4. If most actively managed mutual funds lag their benchmarks, why do they have the majority of investor assets?

As Mark Twain observed,

A lie can get half way around the world before the truth can even get its boots on.”

But with new money going into funds, that’s changing rapidly, as “passive investing is now the mainstream approach,” according to Morningstar (“Do Active Funds Have a Future?” by John Rekenthaler, August 6, 2014). 68% of net sales went into passive exchange-traded and mutual funds versus 32% that went into actively managed funds, during the previous 12 months.

5. What mutual funds do you recommend?

I’m an educator and consumer advocate, not a financial advisor, so I don’t make any specific fund recommendations.

What I can do, however, is suggest a simple three-step approach to investing that our research reveals will give you the best chance of success and also ensure you enjoy a financially stress-free future:

Step 1:Before you invest, build safe and liquid cash reserves equal to at least two years of household expenses, for those inevitable emergencies and opportunities that will arise. This safety net will provide you with priceless financial peace of mind.

Step 2: When you’re ready to invest, only invest money you can afford to wait at least 20 years to recover, not your rainy-day money. Why 20 years? Because since 1929, we’ve had three market crashes where the Dow took between 16 and 25 years to return to pre-crash levels.

Step 3: Invest in low-cost indexed mutual funds that are benchmarked to the broad stock market. And verify that their fees are truly low – look for funds with annual operating expenses of .25% or less.

6. What is the shocking truth about 401(k)s?

Even Ted Benna, who’s considered the “father” of the 401(k), admits he created a monster that’s out of control. Trying to turn the average participant into a skilled investor simply doesn’t work. That’s why these plans are more aptly called “hope and pray” plans.

Congress passed the Pension Protection Act of 2006 with provisions for eligible workers to be automatically enrolled in 401(k) plans, unless they explicitly chose to opt out. So, who do you think the “Pension Protection Act” was designed to protect? If you’re thinking the employees, you’re wrong. It was designed to protect employers from liability. When they follow the law and automatically put your money into “default” investments – typically target-date funds – you have no recourse if you lose your shirt.

Do you assume your 401(k) plan administrator picks good funds? Think again. A study from the Center for Retirement Research at Boston College found that plan administrators choose mutual funds that lag comparable indexes. Their choices were just marginally better than a monkey throwing darts.

Another shocking secret about 401(k) plans that most people discover the hard way is that once you put your money in one of these plans, you lose control of it. These plans have more strings attached to them than a puppet.

401(k) plans have more strings attached to them than a puppet

You’re subject to restrictions on what you can and cannot invest in, how much you can borrow and how you must pay it back, how long you must wait before you can access your money, when you must access it, and how much you must withdraw (and pay taxes on) at that time. Penalties for running afoul of these restrictions can be very costly. Imagine needing permission to use your own money!

And then there’s the promise of deferring your taxes. Most people aren’t aware that if tax rates stay the same, and other factors are equal, you’ll end up paying the same amount in taxes whether you defer your current taxes or you pay them now and invest what’s left.

However, what direction do you think tax rates are going over the long term? If you think they’re going up – as most people I talk to believe – and you’re successful in growing your nest-egg, you’re only going to end up paying higher taxes on a bigger number!

7. What’s a dirty secret about IRAs?

They have most of the same strings attached to them as a 401(k) and the same downsides I just described.

Have you ever left a job and rolled over your 401(k) into an IRA managed by the same firm? Undercover investigators hired by the GAO found that seven of the 30 largest 401(k) providers incorrectly stated there were no fees to open or maintain an IRA. And half of the ten largest firms incorrectly advertised free IRA’s on their websites.

The study found that at one of the largest IRA providers, the annual advisory fee is 1.5% of assets with balances up to $500,000 – which means you can kiss goodbye 40-50% of your account value to fees over time.

8. How can investors protect themselves?

The Securities and Exchange Commission found that “investors have a weak grasp of elementary financial concepts, and lack critical knowledge of ways to avoid investment fraud.” Education is the key.

Question everything and invest time to increase your financial IQ. Start by taking our Financial IQ Quiz to discover and increase your financial IQ. It takes less than ten minutes to do, and you’ll get the correct answers and clear explanations immediately. Just by taking the Quiz, you’ll be much more savvy about personal finance and investing than most people.

9. How should people save and invest for retirement?

Start by knowing the difference between saving and investing. To save means to put money in a vehicle that is safe, protected from loss, and has guaranteed growth. To invest means to put money in a financial vehicle or asset that has a certain amount of risk and no guarantees of growth.

Investing money that you’re saving for things like college or retirement – which is money you really can’t afford to lose – is a sure-fire path to financial insecurity and sleepless nights.

Wall Street has brainwashed us into believing we have to risk our money in order to achieve any significant growth. My research and investigation into over 450 different saving and investing products, strategies and vehicles over the past 25 years proves otherwise.

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Note: The Bank On Yourself system uses generally available whole life policies and riders. The information presented here is for educational purposes only and is not a solicitation for the purchase of any insurance or financial product. All guarantees are based on the claims-paying ability of the insurer. Excess policy loans can result in termination of a policy. A policy that lapses or is surrendered can potentially result in tax consequences. Your results will be different from those shown on this website, as each Bank On Yourself plan is custom-tailored.